Ed Yardeni: Bond market wants Fed to be more vigilant on inflation

Summary

Ed Yardeni argues the bond market has lost faith in the Fed's inflation fight, with the two-year note pricing in three rate hikes. He describes how bond vigilantes are driving yields higher due to the Fed's inaction. Yardeni offers a contrarian view: an actual rate hike could lower long-term bond yields, citing 2024 when rate cuts coincided with rising yields.

• Bond market demands Fed vigilance on inflation after hawkish talk without action.
• Two-year note pricing implies three rate hikes needed.
• Bond vigilantes are raising long-term yields because the Fed hasn't delivered hikes.
• Yardeni predicts that if the Fed raises rates, long-term bond yields could fall.
• 2024 precedent: Fed cut rates 100 bps and long yields rose, supporting the reverse scenario.
• Fed Chair Powell's verbal hawkishness without follow-through damages credibility.
• Yardeni views a rate hike as credibility-restoring and yield-lowering.